Further clarity on relevance of TUPE following a share sale

31 January 2018

How relevant is TUPE in the context of a share sale? A recent decision of the Employment Appeal Tribunal (“EAT”) provides a reminder that TUPE can easily come into play when a buyer is considering what to do with its newly acquired subsidiary. In this case, the buyer’s actions led to an unexpected TUPE transfer and a £3.5 million bill.

Background

On the face of it, TUPE should not be a pertinent factor on a share sale. Ownership of the share capital of a company can change hands without any discernible impact upon the employees of that company: the identity of their employer remains the same before and after the sale.

Yet this recent EAT ruling adds toa growing body of case law on this issue. Last year, in ICAP Management Services Ltd v Berry, the High Court held that “a share transfer is not in itself a TUPE transfer, but may occasion such a transfer”. This built upon earlier cases showing that care should be taken when a share sale is accompanied by some form of restructure or reorganisation, or where the new owner of a company takes steps to take over control of that company’s business in some other way (see Print Factory (1991) Ltd v Millam [2007] ICR 1331 and Jackson Lloyd Ltd & Mears Group plc v Smith UKEAT/0127/13).

The ICAP judgment identified the key things to look out for when considering whether integration activities following a share purchase might lead to a TUPE transfer (the “indicia of transfer”). Essentially, if the new parent company becomes responsible for carrying on the subsidiary’s business, takes on the obligations of the employer or takes over the day-to-day running of the business, a TUPE transfer may well occur.

Facts of the case

The latest EAT case is an example of a situation where the necessary indicia were present and a TUPE transfer had in fact occurred. It concerned Blinkbox Music Ltd (“BML”), which operated a music streaming business.In January 2015, BML’s owner, Tesco, sold all of its shares in BML to a subsidiary of a company called Guvera.

At the time, BML employed 110 employees in its business, but the share sale had no immediate impact on them. BML continued to employ them notwithstanding the fact that BML’s owner had changed from Tesco to Guvera. One of Guvera’s directors became the sole director of BML and Guvera gave him a period of time to turn BML’s struggling business around.

On 11 May 2015, however, the BML director resigned. The following day, the CEO of Guvera sent his chief technical officer to BML with specific instructions on how to deal with the business going forward. These included requirements that certain information be provided to Guvera and that BML stop making payments while options were discussed with liquidators.

By this stage, Guvera was primarily interested in extracting certain assets and a small number of employees from BML. 54 employees of BML were consequently dismissed as redundant on 15 May 2015 and Guvera informed the remaining BML employees on 18 May that they had become employees of Guvera. BML went into administration on 11 June 2015, having failed to pay redundancy and notice pay to the dismissed employees.

Had Guvera avoided any liability towards the dismissed employees by maintaining that they were employed by BML until the point of dismissal? The Employment Tribunal (“ET”) said no, finding that a TUPE transfer occurred when Guvera’s chief technical officer arrived at BML and started implementing the CEO’s instructions. Guvera had assumed day-to-day control of BML’s business “in a way that went beyond the mere exercise of ordinary supervision or information gathering between parent and subsidiary”.

The ET concluded that BML’s employees had transferred to Guvera under TUPE on 12 May 2015 and were therefore Guvera employees at the time of their dismissal three days later.

The EAT’s judgment

Guvera appealed to the EAT, but it agreed with the approach taken by the ET. Guvera was no longer just the parent company of BML as it had taken control of BML’s business and a TUPE transfer had occurred as a result.

According to the EAT, the test to be applied in determining whether there has been a TUPE transfer is a multi-factorial one. The “indicia of transfer” referred to by the High Court in ICAP were important aspects of that test, but no single factor is decisive either way. In this case, it was clear that Guvera had "stepped into the shoes" of BML as the employer.

Implications

The case illustrates how significant care should be taken when a parent company decides to show more of an interest in the business of its subsidiary (whether following a share acquisition or otherwise). If the parent starts making decisions and issuing directions in a manner which suggests that it has assumed control of the subsidiary, it could inadvertently become the employer of an entirely new workforce. Guvera has learned that lesson at some considerable cost.

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